Management Notebook

KNOW HOW TO WALK AWAY

What you need to know when you sell your club.

With national chains taking over more of the club industry, the landscape of the fitness business is changing drastically. More small club owners are selling their businesses. But small club owners often don't have the experience they need to get the most they can out of their club when they decide to sell.

Charley Swayne has been through several club sales. The former owner of Valley View Fitness Center in La Crosse, WI, Swayne has had years of experience helping friends sell their fitness clubs.

According to Swayne, the more you know before you sell, the better off you'll be. Here's what he has learned about exiting club ownership.

Ensure you can show trends for the last few years. You must have a solid and consistent business record for the past few years, something that will make your business more attractive to a buyer. You may want to pay for a certified financial statement. These statements can cost between $10,000 and $15,000, but certified financial statements can make a buyer more comfortable about the purchase because the statements will show that your revenues have been increasing consistently while your expenses have been increasing at a slower rate.

“It shows you know how to control your expenses,” says Swayne.

Eliminate all hidden liability. Take care of any liabilities so that the new owner doesn't find out a year later that you pulled one over on them and come back and sue you.

Sell the entire entity. Sell the assets and the liabilities. Even though you may think you've cleared up every liability issue there is, you may not know about something that happened a few years earlier that could come back to haunt the club after you've left. If the incident happened on your watch, you'll be liable for it unless you've sold the liability to the new owner.

Decide whether you want to sell to another individual or to a national chain. In the same vein, you have to know whether you are selling to someone from outside the industry or someone with a lot of experience in the industry. Chain clubs generally have someone in charge of buying clubs, and that person is well versed in this art. An individual or group of individuals buying a club could be novices or could have a few years of experience in the business, but chances are they are not as savvy as the chain buyer. Knowing who your potential buyer is will help you in the following areas:

Appraisals

In a sale to someone with little to no experience with health clubs, you may want to use an appraiser unfamiliar with fitness clubs. Typically, these appraisers will appraise clubs higher than appraisers familiar with the business, Swayne says. However, if you are selling to someone with knowledge of the industry — a chain or individual — you will need to get the club appraised by someone with club appraisal experience.

Broker

Use a broker if you want to sell to someone outside the industry. They can help you find a buyer looking for an investment opportunity. If you want to sell to someone inside the industry, you don't need a broker, Swayne says. Just advertise in trade publications.

Get what you can from a chain. Chains are sophisticated in their buying, which generally puts the individual gym owner who's selling at a disadvantage.

“The only way you'll get a good price from a chain is if two chains are trying to bid for you,” Swayne says. For that reason, if one chain expresses interest, don't be hesitant to stir interest from another chain.

Chains also may try some creative payment options with the individual owner, but Swayne says not to take it.

“With a chain, get cash and get out. Don't take their stock or payment in five years,” says Swayne. “[The chains] can get the money if they want to.”

Be ready to do a “rent-to-own” plan. Individual buyers seldom have the money to buy your club outright. That means you may have to set up a lease/purchase agreement in which you maintain a landlord role over the club. The new owner pays you a set amount each month until they've paid off the full amount of the purchase. At any time, the new owner can pay off the remaining balance. However, if the new owner misses a payment, you have the right to take the club away and sell it to another entity.

Hire a good attorney. Before you sell your club to anybody, find an attorney who is an experienced buy/sell attorney.

Stay away from handshake deals. “If you are lucky enough to find an honest person on the other side of the table, things can be done quickly on a handshake,” Swayne says, but he cautions that handshake deals are extremely risky.

Find a buyer who fits your mold. Individuals who sell clubs often remain in the community, and people in that community will associate the club with the former owner. Through the years of ownership, the members and employees of the club often become friends of the owner. Therefore, the owner usually doesn't want to turn the business over to someone that won't run the business in a manner consistent with the seller's values and standards. “It's the most important thing I do when I sit down with my friends and they want to buy or sell a club,” Swayne says. “I try to do a personality and integrity profile on both…I've seen deals fall apart because of that.”

WHEN YOU CARE ENOUGH… TO GIVE FREEBIES

It doesn't take a lot of cash to show your members appreciation.

You probably never tire of hearing members tell you how your club changed their lives. How the exercise program you started them on helped them lose weight or helped strengthen their back so they could lift their grandchildren again. Feels good, doesn't it?

Well, it may be time to return the favor and tell your members how appreciative you are that out of all the clubs in the city they chose yours.

Membership appreciation “is not something that we talk about in the industry,” says Laurie Cingle, executive director at Mercy HealthPlex in Fairfield, OH. “We focus on sales and programs. I've never really talked to people about what they do for appreciation.”

However, club owners can do a host of actions to show that they appreciate members' loyalty.

Start with a thank you

Clubs have a hard time getting people started after they join. New members to the 29 locations owned by Sport & Health Clubs in the Washington, D.C. metropolitan area receive a thank you note, a follow-up phone call and a discount coupon or other freebies after completing a fitness assessment and orientation, says Michael Meehan, senior vice president and director of operations at Sport & Health Clubs. The special attention to new members is a way to get them into the club after joining and to get them comfortable with the club that they'll keep coming back.

Show them that you know them. Sport & Health Clubs is updating its computer system so that it will e-mail a birthday card to each member.

Some clubs post photos of charter members and new members on their bulletin boards. Sport & Health Clubs also post letters from members on their bulletin boards.

Make them stars

If you're running a TV or radio ad, you'll find no better “stars” for the spots than your own members. Sport & Health Clubs use real member photos in their marketing pieces and real member voices and stories on promotional radio ads.

Participation in the commercials increases club loyalty of the participants because they feel like they are part of the company, Meehan says.

His club also mails out quarterly newsletters to members and the community. Each issue includes at least one feature about a member.

Offer incentives

Offering value-added points for long-term members is a way to reward members. Meehan's clubs offer value-added points that translate into discounts for massage services, tanning, pro shop items, locker rental fees, upgrades for spouses and more. In addition, the club offers member discounts on programs offered to the public.

Give them freebies

The company gives away gym bags at certain events. Those bags become more important later because it shows their longevity with the club, says Meehan.

Focus

Invite members to participate in focus groups to discuss improvements to the facility and its programs. Most clubs might not consider this as member appreciation, but it does show members that you value their opinions.

Host health fairs and open houses

While the main purpose for these events may be to attract new members, it also is a perfect opportunity to show members that you care about them. Sport & Health Clubs holds one of these events about every two months and members can get free screenings for cholesterol, osteoporosis and high blood pressure.

Throw a shindig

A party for members can be one way to show appreciation. Cingle has thrown parties at clubs she's worked at in the past.

“They worked well,” she says. “Members were happy, and we got lots of leads and met interesting people.”

Every December, Cingle puts on a Jingle Bell Aerobics, Jog and Pancake Breakfast that's free to members. Parents can do the 5K run or participate in aerobics and then come back to the auditorium — where Santa Claus has been entertaining the children — to eat some pancakes.

Of course, showing appreciation with discounts, gifts and parties won't inspire loyalty if a club doesn't also provide good staff, equipment and programs that offer what members want and need. However, it can't hurt to show a little appreciation to those members who keep coming back to your club.